For Michigan's legislature, finding a solution to balance the state's $646 million budget deficit has been akin to answering a question on a standardized test.

The best answer isn't necessarily the right answer — it's just the one that isn't the worst. But in this guessing game, all the solutions seem to be the wrong ones.

The shortfall poses an array of potential problems for many state entities — including higher education institutions — and everyone from Gov. Jennifer Granholm to Michigan legislators are trying to find the best way to patch the wound.

Last month, Granholm released an executive order that delayed $73 million to all 15 Michigan public universities, $13 million of which was postponed to MSU. Both the state House and Senate passed the order, which enacted the legislation.

"If we don't turn around the disinvestment in both public, elementary and higher education, we're doomed," said Tom Clay, director of state affairs for the Citizens Research Council of Michigan, a nonpartisan statewide organization that studies state and local government policy through factual research.

"If there's anything that's clear, it's that states investing in higher education are the states doing well. We're below the national average."

The problem begins

Granholm proposed to balance the budget deficit through a combination of tax increases, budget cuts and governmental reforms.

Her plans included a $1.5 billion tax on services, an estate tax on those worth more than $2 million and tax hikes on cigarettes and liquor.

After studying her budget proposal, Senate Republicans determined it would be a burden to Michigan families and job providers, said Sen. Majority Leader Mike Bishop, R-Rochester.

"We are a state in financial crisis, and all members of elected government must work together on solutions," Bishop said.

"We still have not seen how the administration plans to deal with this deficit, yet the governor still moves ahead with tax increases."

The Senate rejected Granholm's plan and created one of its own.

The Senate's plan, which includes a $309.8 million cut to the state's general fund and a $377.4 million cut to the School Aid Fund, which finances education, would significantly reduce the state's ability to progress economically, said Greg Bird, spokesman for the Office of the State Budget.

"We believe those types of cuts that the Senate has proposed, whether they be to education, public safety or health care services, are unnecessary and counter-productive to moving Michigan's economy forward," Bird said. "It makes unnecessary cuts to public schools, to public safety and to health care services for seniors and children. Their plan disinvests in our state and in its people."

After evaluating the Senate's plan, Granholm concluded it would stunt Michigan's long-term economic development.

The only belief Granholm and Senate Republicans share is they must balance the budget before Sept. 30, the final day of this fiscal year.

If the legislature wants to find ways to balance the budget without hurting too many people, it needs to get creative, said Charles Ballard, an MSU economics professor.

It could start by changing its prison system, he said.

"Incarcerating a prisoner for a year costs the state more than $30,000," Ballard said. "I am not advocating letting violent criminals off early, but if you a look at neighboring states, they have lighter sentences than Michigan.

"If we had the same sentencing policy, we would save half a billion dollars, which would go a long way to solving this year's budget crisis."

The state also would benefit by instituting a graduated income tax system, which would tax individuals with higher incomes more than those with lower incomes, Ballard said, adding that 37 states employ the system.

"The biggest story of our economy has been the widening gap between those at the top and those at the bottom," he said. "Most other states survive quite well by taxing the high-income folks a little more than we do."

The two parties are going to have to compromise, Clay said.

"We're going to see a compromise between the two ends of the spectrum," Clay said. "We'll end up seeing some kind of revenue increase, maybe temporary, and more cuts in spending than the governor included in her proposal."

The education picture

While the legislature deliberates ways to balance the budget, Michigan schools and universities are waiting to see whether they will be victims of further financial setbacks.

Colleges and universities already have had to absorb the bad news that the legislature would postpone payment of a combined $73 million promised to them this year.

Now, Senate Republicans are picking at the School Aid Fund by trying to implement a $34-per-student cut for K-12 schools.

The proposed cut would be modest, said Bishop, who added that the plan would maintain funding for essential services, such as assistance for schools with declining enrollment, programs for at-risk students and adult education.

The low cut is misleading, said Rep. Mark Meadows, D-East Lansing.

"Although it sounds like a small amount, it would actually have a devastating effect on school districts that committed to pay for something that was going to be covered by the next installment of per-pupil funding," Meadows said. "Some school districts will be in danger of cutting down to balance the books."

At the university level, a direct consequence of reduced funding to higher education would be greater tuition costs — but there's more to it than that, Clay said.

"In the long run, if the state doesn't step up and make an adequate investment in higher education, the state you live in now isn't the place you might want to live in the future," he said. "Michigan might not be the kind of place that has the amenities and job opportunities that students would be looking for."

The legislature needs to find a different way to balance the budget, said Lauren Knudson, a speech pathology senior.

"I don't think it's a good idea," Knudson said.

"We pay enough for tuition. They should look for an alternative rather than cut higher education."

It's unwise for the state to continue investing in programs it can't afford, Bishop said.

"It is highly irresponsible to promise new investments with money we do not have, that would build bigger government we cannot afford," Bishop said.

During the last two years, House Republicans have developed plans that invest in education without raising taxes, said Matt Resch, spokesman for House Minority Leader Craig DeRoche, R-Novi.

"By making reductions and reforms in areas of government like corrections and welfare, we can continue to invest in priorities of the state, like higher education, without raising taxes," Resch said.

Granholm has repeatedly stated that higher education will be the key to the state's long-term economic success, as it loosens its dependency on the automotive industry.

If schools receive fewer appropriations from the government, and universities have to raise tuition costs, it would hurt both students and the state, said Chelsea Walker, a premedical freshman.

"Tuition is already really high, and if you can't afford higher education, you're not going to be able to contribute to the economy," Walker said.

If the Senate decides to approve Granholm's full budget proposal, the state could actually increase its investment in Michigan's education system, Bird said.

"Her proposal invests more in education," he said. "As a state, if we're going to be competitive and grow our economy, we need to start investing in those things that will make our citizens and state more effective."

Staff writer Kristen Daum contributed to this report. Alex Altman can be reached at altmanal@msu.edu.